When Will the Refinance Boom End?
It’s hardly a secret that the latest refinance boom helped the mortgage industry rebound in 2012. The Federal Reserve committed to low rates for 2 more years and QE3 has kept money flowing into this anemic economy. Certainly record low interest rates certainly have helped stimulate home purchasing, but a majority of the properties bought have been investor-driven. But many home buying prospects remain on the sidelines because they are unable to meet today’s strict home loan guidelines that require higher credit scores and acceptable income documentation.
The HARP 2.0 served up a significant opportunity for refinance activity when Fannie Mae and Freddie Mac removed the LTV restrictions on the Home Affordable Refinance Program. The HARP opportunities have helped this year but the activity for qualified HARP applicants is rapidly dropping because for the most part people that were eligible for HARP 2.0 either refinanced or are in process now. The most significant demand for borrowers in need of refinancing in 2013 is homeowners that do not meet the HARP 2.0 criteria. Will HARP 3.0 arrive any time soon?
Can Home Refinancing Support 2013 Loan Origination?
Credit scores have been increasing for some homeowners so we may see a new wave of eligible borrowers looking to cash in on record low rates. Hopefully the new wave of 620 – 660 fico borrowers will still be employed with income that can be documented for loan purposes. According to NAR, housing starts and property values have increased since last year but, job security remains a major concern going forward. This employment issue may be an obstacle for increased home purchase activity but only time will tell. The negative effects of the Federal Reserve printing “funny money” will make an impact sometime in the near future.
Let’s be honest the “refi-boom” can’t go on forever. Sure 2013 will see more activity as interest rates will remain low. The pool of qualified borrowers has refinanced and refinanced again. Homeowners that didn’t qualify for refinancing in 2011 and 2012 likely won’t qualify in 2013 either. 80% of loans closed in 2012 were refinance transactions. Until private money returns to the mortgage market, there is very little evidence that the refinance activity will continue at its current pace. Is the “refinance boom” coming to an end? Will rising unemployment reduce the pool of qualified borrowers? The unfortunate reality is that there are more unqualified homeowners than qualified ones.
We suggest diversifying your niches to include purchase loan programs in addition to marketing the refinance business that is presently filling your pipeline. If HARP 3.0 does arrive in the coming months then we can reconvene and discuss the emerging opportunities that would extend the current refinance boom through 2014. Until then, try to incorporate more purchase money and develop your “bank of business” for the years to come.